How China’s Midea went from appliance maker to global player

The HQ that appliances built: Midea’s high-tech corporate offices and modern manufacturing plants in the Shunde district of Foshan City, Guangdong province, south China

To be successful, you have to have your heart in your business, and your business in your heart. —IBM CEO Thomas Watson Sr.

GUANGZHOU, China — How can business successes in Southeast Asia and East Asia become truly world-class beyond the comfort zones of our own domestic markets? Which entrepreneurs and companies can we study as role models in our dream to build globally competitive Asian businesses?

One unmistakable sign of economic progress in Asia seems to be the meteoric rise of consumer brands from South Korea, Taiwan and Japan internationally. Now China is also steadily globalizing several of its bestselling homegrown brands like Huawei technologies, Tsingtao beer, Lenovo computers and smartphones, TCL and Hisense TVs, and the famous appliance maker Midea.

Midea executives recently revealed their plans to sell to the Philippine market their air-conditioners, refrigerators, washing machines and microwaves in January 2014. Midea produces 50 percent of the world’s microwave ovens or 30 million units per year, 50 percent of the world’s rice cookers or 25 million units per year, is the world’s No. 1 maker of electric fans and produces one out of four of the world’s split-type air-conditioners.

I also toured Midea’s elegant, high-tech corporate offices (with a unique design inspired by a golfer’s body twist since the company founder is an avid golfer) and modern manufacturing plants in the Shunde district of Foshan City, Guangdong province in south China. Shunde is the hometown of both Midea Group founder He Xiangjian, Melbourne, Australia’s former Lord Mayor John So and the late martial arts icon Bruce Lee.

Here are some of Midea’s success strategies, based on our interviews and research:

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1. Brand building — Although the business started in 1968, the trademark “Midea” was registered in 1981 along with its first logo. They have consistently built up the popularity and positive image of the Midea brand via good quality, appealing designs and savvy marketing efforts. Their brand values include “focus on healthy lifestyle, efficiency and quality.” Brand Finance evaluated the Midea brand as worth $2 billion.

2. Visionary leadership — He Xiangjian is the media-shy, self-made entrepreneur who built up Midea. In 1968, he led a group of 23 local residents of Beijiao town in Guangdong province to raise initial capital of only 5,000 yuan (or RMB) to set up a bottle lid production workshop. This venture evolved and grew to become the Midea Group. As of October 2013, Forbes magazine estimated He Xiangjian’s net worth at US$6.8 billion.

3. Integrated manufacturing facilities — One distinct edge of Midea as a world leader in appliance manufacturing is the huge scale and comprehensive nature of its integrated industrial complex on 50 hectares of land in Shunde district.

Not only are the factories so clean, orderly and use state-of-the-art technologies, most of the diligent workers are young and fast at doing their jobs. Each manufacturing line has an electronic timer that monitors and digitally shows how fast it is to produce each microwave or washing machine.

4. Professional management — Midea has 150,000 employees worldwide. One of its strategies for success is investing in human resources. They use top-notch professionals, whether locals or foreigners. The average age of Midea’s highly trained professional managers and executives is 36 years old.

Founder He Xiangjian officially retired from his position as the chairman of Midea Group on Aug. 25, 2012 and he handed his position over to a non-family member and professional manager, Fang Hongpo. The 71-year-old continues to be chairman of Midea Holdings Co., the parent company of Midea Group and his focus now is on development strategy. Quite non-traditional for Asians, the founder’s son He Jianfeng serves as a director but doesn’t take part in Midea’s management.

5. Success in the domestic market — Midea established market leadership in various segments of the appliance business in China before going global.

6. Global expansion — Midea executives told me that unlike South Korea, which is a small market and thus encourages their factories to export early on, China has the world’s biggest domestic market but Midea still sought to go global.

In 2007, Midea established its first overseas factory in the Vietnam Industrial Park near Ho Chi Minh City (formerly Saigon), which now manufactures rice cookers, air-conditioners and refrigerators. Midea today has operations and production bases in Vietnam, Belarus, Egypt, Brazil, Argentina and India, plus a rapidly expanding distribution network in more countries worldwide.

7. Strong international partners — Among the international technology and other partnerships of Midea in its quest for continuous growth include Carrier of the USA and Toshiba of Japan.

8. Acquisitions of companies — One of the strategies for the phenomenal growth and product diversification of Midea is its acquisitions of different businesses. In 1998, Midea entered the aircon compressor business by purchasing the Macro-Toshiba compressor factory (renamed GMCC-Guangdong Midea Toshiba Compressor Corp.). Midea also built its first magnetron factory in 1998 with help from acquired assets from Sanyo.

In 2004, Midea entered the refrigerator and washing machine manufacturing business by acquiring Hefei Royalstar joint venture and the Hong Kong-listed Hualing Group. Midea entered vacuum cleaner manufacturing in 2005 by purchasing Jiangsu Chunhua Electric Group. One of its famous acquisitions was the publicly listed appliances producer Little Swan in 2008.

9. Research and development — After attending the 2010 Asian Games in Guangzhou and then touring the industrial complex of Huawei technology firm to witness its huge R&D efforts, PLDT and Smart boss Manuel “Manny” V. Pangilinan, in a speech before Ateneo alumni, said: “The trip was like a religious experience for me.” He urged companies to invest in R&D.

One of Asia’s most innovative firms is Midea, which reinvests three percent of company-wide revenues back into research and development, thus producing a lot of original patents on technology and also product design innovations.

10. Corporate social responsibility — Midea is one of the top corporate taxpayers in the various countries where it has factories; it also supports civic causes.